00                       CS FOR HOUSE BILL NO. 57(FIN)                                                                    
01 "An Act amending the manner of determining the royalty received by the state on gas                                     
02 production as it relates to the manufacture of certain value-added products."                                           
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1.  AS 38.05.180(aa) is amended to read:                                                                 
05            (aa)  Within 90 days after the written request of a lessee of a lease issued under                           
06       this section or of a lessee of federal land from which the state is entitled under                                
07       applicable federal law to receive a share of the royalty on gas production, the                                   
08       commissioner shall enter into an agreement with the lessee to use or accept the price                             
09       for the gas established in the contract between the lessee and a gas or electric utility,                     
10       or, for a contract that is entered into on or after the effective date of this Act, to                        
11       use or accept a price for the gas established in the contract between the lessee and                          
12       a manufacturer of agricultural chemicals, as appropriate, as the value of the state's                         
13       royalty share of gas production sold by the lessee under the contract                                             
14                 (1)  but only if                                                                                        

01                      (A)  for a contract between the lessee and a gas or electric                                   
02            utility, the primary function of the utility with which the lessee has entered                           
03            into the contract is to provide, either directly or by selling at wholesale to                               
04            another utility, gas or electricity to the general public, including residential                             
05            consumers, within the utilities' service areas, and the utility with which the                               
06            lessee has entered into the contract is not an affiliated interest, as that term is                          
07            defined in AS 42.05.990, with the lessee or with a subsequent purchaser of                                   
08            more than 10 percent of the utility's gas or electricity; or                                             
09                      (B)  for a contract between the lessee and a manufacturer of                                   
10            agricultural chemicals, the primary function of the manufacturer is to                                   
11            engage in the production of a value-added product, and the manufacturer                                  
12            with which the lessee has entered into the contract is not affiliated with the                           
13            lessee or with a subsequent purchaser of more than 10 percent of the                                     
14            manufacturer's value-added product; for purposes of this subparagraph,                                   
15            the parties to a contract or purchase are affiliated if, in the judgment of                              
16            the commissioner, one of the parties to the contract or purchase exercises                               
17            substantial influence over the policies and actions of the other as                                      
18            evidenced by relationship based on common ownership or family interest                                   
19            or by action taken in concert without regard to whether that influence is                                
20            based upon stockholdings, stockholders, officers, or directors; and                                      
21                 (2)  unless the commissioner makes a written finding, based on clear                                    
22       and convincing evidence, that                                                                                     
23                      (A)  for a contract entered into for a circumstance described                                  
24            in (1)(A) of this subsection                                                                             
25                           (i)  the contract price is unreasonably low;                                              
26                           (ii) [(B)]  the prospective reduction in royalty receipts                                 
27                 would not be balanced by increased benefits to in-state gas and electric                                
28                 consumers;                                                                                              
29                           (iii) [(C)]  the lessee and the utility are related in                                    
30                 management, ownership, or other aspect; and                                                             
31                           (iv) [(D)]  the contract price is not in the best interest of                             

01                 the state;                                                                                          
02                      (B)  for a contract entered into under (1)(B) of this                                          
03            subsection between a lessee and a manufacturer of agricultural chemicals,                                
04                           (i)  the contract price is unreasonably low;                                              
05                           (ii)  the prospective reduction in royalty receipts                                       
06                 would not be balanced by employment opportunities or other                                          
07                 tangible benefits to the state;                                                                     
08                           (iii)  the lessee and the manufacturer are related in                                     
09                 management, ownership, or other aspect; or                                                          
10                           (iv)  the contract price is not in the best interest of                                   
11                 the state.                                                                                          
12    * Sec. 2.  AS 38.05.180(bb)(2) is amended to read:                                                                 
13                 (2)  "price for the gas established in the contract" includes tax                                       
14       reimbursement amounts, deliverability and other charges, and other forms of                                       
15       consideration paid by the gas or electric utility or by the manufacturer of                                   
16       agricultural chemicals, as appropriate, under the contract;                                                   
17    * Sec. 3.  AS 38.05.180(bb) is amended by adding a new paragraph to read:                                          
18                 (4)  "manufacturer of agricultural chemicals" means a person that is a                                  
19       business entity primarily engaging in the manufacturing of nitrogenous and phosphatic                             
20       based fertilizers, mixed fertilizers, pesticides, and similar chemicals for agricultural                          
21       purposes.                                                                                                         
22    * Sec. 4.  The uncodified law of the State of Alaska is amended by adding a new section to                         
23 read:                                                                                                                   
24       APPLICABILITY.  The provisions of this Act apply to determine the price received                                  
25 by the state on royalty gas production as it relates to the sale of the gas to a manufacturer of                        
26 agricultural chemicals based on contracts under AS 38.05.180(aa) that are entered into on or                            
27 after the effective date of this Act.